Derek Cheung took the reins as CEO of Computer And Technologies Holdings Limited’s (HKG:46) and grew market cap to HK$748.47m recently. Recognizing whether CEO incentives are aligned with shareholders is a crucial part of investing. This is because, if incentives are aligned, more value is created for shareholders which directly impacts your returns as an investor. I will break down Cheung’s pay and compare this to the company’s performance over the same period, as well as measure it against other SEHK-listed CEOs leading companies of similar size and profitability.
What has 46’s performance been like?Profitability of a company is a strong indication of 46’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for Cheung’s performance. Recently, 46 released an earnings of HK$61.71m , which is an increase of 22.14% from its last year’s earnings of HK$50.53m. This is a positive indication that 46 has strived to maintain a good track record of profitability in the face of any headwinds. Since earnings are heading towards the right direction, CEO pay should echo Cheung’s valued-adding activities. During the same period, Cheung’s total compensation grew by a mere 3.93% to HK$2.51m. In addition to this, Cheung’s pay is also made up of 8.33% non-cash elements, which means that variabilities in 46’s share price can impact the real level of what the CEO actually receives.
Is 46’s CEO overpaid relative to the market?Though one size does not fit all, since remuneration should account for specific factors of the company and market, we can gauge a high-level thresold to see if 46 deviates substantially from its peers. This exercise can help shareholders ask the right question about Cheung’s incentive alignment. Generally, a SEHK small-cap is worth around HK$2.61B, creates earnings of HK$245M, and pays its CEO circa HK$3.3M annually. Accounting for 46’s size and performance, in terms of market cap and earnings, it appears that Cheung is being paid well below other SEHK CEOs of small-caps, on average.
Hopefully this article has given you insight on how shareholders should think about 46’s governance policies such as CEO pay. As an investor, you have the right to understand how the board thinks about management incentives, and also the right to vote for and against substantial CEO pay changes. Governance is a big factor in investing, and I encourage you to dig deeper into those that represent your voice on the board. If you have not done so already, I urge you to complete your research by taking a look at the following:
- Governance: To find out more about 46’s governance, look through our infographic report of the company’s board and management.
- Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of 46? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.